Piercing the Veil of TVL: DeFi Reappraised

Total value locked is DeFi's gold standard metric, but it's fundamentally flawed due to ‘double counting’ from wrapping and leveraging activities. This research introduces ‘total value redeemable,’ a new framework revealing the true underlying value of DeFi systems. The analysis uncovers that TVL exceeded actual value by $139.87 billion at DeFi's peak, with a TVL-to-TVR ratio of approximately 2.

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Using a novel DeFi multiplier mirroring traditional finance's money multiplier, the study demonstrates that a 25% ETH price decline triggers $1 billion greater non-linear decreases in TVL versus TVR through derivative token liquidations.

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